Asset can offset the liability
- There is a legally enforceable right to offset; and
- The entity intend to realise the asset and settle the liability simultaneously
Modification of debt criteria
The modification is considered substantial if the difference between the following is more than 10%:
* The PV of cash flows under new arrangement, including fees, discounted at the original EIR (effective interest rate)
* The PV of the remaining CF under the original arrangement
Put option on holder
(option to sell)
- Redemption is at the option of holder
- Issuer cannot avoid (has obligation) to pay $$
- Exp: redeemable preference shares, if holder has a put option to ask issuer to buy back F.I and gives the share option, issue cannot avoid it (Issuer issue put option to holder, holder put option and has the right to sell F.I, if holder want to sell, issuer has obligation to buy back; holder要卖F.I，如果他有put option 权利去叫issuer buy back and 换 shares，issuer cannot avoid it to pay shares option to holder）
- Limited life
- Dividend/interest is non-discretionary (compulsory)
- Redemption is triggered by a future uncertain event beyond the control of holder and issuer (unavoidable liability)
Call option on issuer
(option to buy)
- Redemption is at the option of issuer
- Issuer has no obligation to buy back
- Exp: irredeemable preference shares, issuer has option to buy back the F.I, but no obligation to buy back, if issuer want to buy back, then just pay back $$ to holder
- No liquidation date
- Dividend is discretionary (not compulsory)
Convertible loan note
Holder:
* has option to redeem cash or convert to shares
* Initial recognition: Dr bank, Cr convertible loan note (financial liability) (因为holder给钱issuer买financial instruments), Cr Equity option (balancing)
* 做法：Year –> cash flows (figures multiply interest rate) –> discount factor –> Present value
* Sunsequent measurement after elect for conversion: Liability = measured at amortised cost; Equity - not remeasured and value remains until it is redeemed: Dr convertible loan note (financial liability), Dr equity option, Cr ordinary shares, Cr Share premium
Issuer:
* see convert share is more likely or pay cash, then recognise liability or equity
Incur issue cost ($2)
Financial Liability:
* Dr FL
* Cr bank
Equity:
* Dr share premium (equity)
* Cr bank
Convertible loan note:
* Dr Liability (90/100) x 2
* Dr Equity (10/100) x 2
* Cr Bank 2
Financial Asset (scenario 1, 2, 4)
* Dr FA
* Cr Bank
Financial Asset (Scenario 3)
* Dr SOPL (coz trading)
* Cr Bank
Financial asset
Scenario 1: amortised cost
Scenario 2: initial amortised cost, then FV adjustment record in OCI. If FV drop, record in OCI, and expected credit loss (impairment loss) record in SOPL
Expected credit loss (ECL)
- Stage 1: low credit risk
- Stage 2: high credit risk
- Stage 3: company cannot survive/cannot going to receive $$ anymore
Present of tax in OCI and SOPL
- In OCI, present net of tax (tax in OCI)
- In SOPL, present tax expense (tax in SOPL)
